Will China Flex its FX Muscle?

You know we love “signs of the times.” This might be the granddaddy of them all:

China National Offshore Oil Corp and Exxon Mobil are about to enter a bidding war over oil-rich water near Ghana. At stake is “Jubilee,” a recently discovered offshore site that probably holds a couple billion barrels of oil. This isn’t China’s state-owned offshore oil company’s first foray into the global energy grab, but it’s one of its biggest. Exxon currently has the winning bid — $4 billion.

Technically, it’s going to be a “bidding war,” but really, it’s just a matter of how much China is willing to pay. The Red Nation announced this morning that its foreign exchange reserves rose $141 billion in the third quarter, to $2.27 trillion — the biggest national war chest in the history of fiat money… a feat they’ve accomplished in a remarkably short time:

No company, even the mighty XOM, can hang with that.

“More than $40 billion in loans to Brazil, Russia and Venezuela in exchange for future supplies,” the FT notes, “direct state purchases of other producers and pledges of infrastructure to countries such as Angola give China a claim to billions of barrels of future production. Add to that huge sums spent or pledged in pariah states such as Iran and Sudan, where U.S. companies cannot compete, and China’s political edge in securing supplies is clear.”

Heh, and can you even imagine the U.S. — the world’s largest oil consumer — trying to elbow our way into this Jubilee deal? With what… T-bills? Citigroup prefered shares? Chevy Malibus?

About Ian Mathias:

Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report, Agora Financial’s flagship income investing advisory.

Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.